Tuesday, July 01, 2014

Don't kill the Export-Import Bank

When I was a teenager, a conservative group called the Eagle Forum started focusing its attention on my hometown. One of the things they demanded was that children be taught to read using a system called phonics, i.e. sounding out words. To everyone but the Eagle Forum, phonics seemed like an odd thing to focus on. No one besides them cared in the slightest. The push eventually fizzled out when it was discovered that our schools already used phonics, but I’m sure that had that not been the case, the Eagle Forum -- which, with its squawking ambushes, is more blue jay than eagle -- would have succeeded in getting us to switch, just to make them stop bothering us.

The Tea Party’s assault on the Export-Import Bank reminds me a little of the Eagle Forum’s push for phonics. A right-wing group convinces itself that some peripheral issue is really, really important, launches a crusade against it, and charges to victory before anyone else can even bring themselves to believe that anyone would possibly care. In the case of Ex-Im, the defenders -- who include Republicans such as Rick Perry -- may scramble in time to repel the blindside. But some damage will already be done, since firms that count on the Ex-Im Bank will now have to worry that the Tea Party hordes will eventually succeed in killing it. Even if Ex-Im survives, using it will now entail greater political risk...

Who the heck knows...phonics was something their leader happened to care about, so they treated it like it was this big issue. As for why they didn't realize we used it...I doubt they even cared, they just repeated their standard party line, moving from town to town.

I read everybody from Joseph Stiglitz to Nick Hanauer to David Kay Johnston, moaning about how the right monopolizes the national conversation with their silly big government and big deficit fobias. Whoa, Whoa, Whoaaa is us!

Progressives could completely dominate the national conversation tomorrow if they ever came up with true game changing issues — not phobias — that would capture everyone’s’ imaginations and make an opportunity to really educate the public to what is happening to them. The issues are of course as fast a jump as possible to the minimally survivable $15 an hour minimum wage (not the virtual/impossible $10 minimum of the present — see above) and the ultimate labor market AND political forum make over, legally mandated centralized bargaining.

YOU DON’T EVEN HAVE TO WIN (at first)! The scales will melt away from everybody’s eyes when you take the opportunity to teach them what they really need.

People don’t really sit around coffee shops and discuss what the deficit will be 40 years from now or whether big government is the problem — unless there is nothing else to distract them. And they don’t spend a lot of time discussing climate change or Wall Street re-regulation. Single payer would be great (win OR lose) but most people are covered and everyone was/is scared of Obamacare.

If a crazy person fervently opposes something, am I obligated to support it, even if I think the crazies are correct (perhaps for the wrong reason)? Does this mean we are permanently stuck with any stupid policies that crazy people happen to oppose?

I woulld agree that this is not really a big deal one way or the other. There are certainly principled reasons to opposed Ex-Im, favoritism, cronyism, with the huge amount that Boeing gets being poster boy for that. Boeing cannot get private financing? That is the big surprise to me on that one.

Anyway, the defense that is made by some, which I have not seen any make here so far, including Noah, is that this is an offset to what other nations are doing. Many, if not most, of our major trading partners engage in all kinds of subsidizations and financing and so forth to assist their exporters. Compared to them we do very little of that, which is at least partly reflected in our chronic trade deficit. So, the argument has been that Ex-Im was one of our few ways of offsetting what the other nations are doing. But I can't say I am all worked up about this, and maybe the TP should have a win from time to time when it is not just completely barking insane as is usually the case.

"Many, if not most, of our major trading partners engage in all kinds of subsidizations and financing and so forth to assist their exporters."

But as Dean Baker pointed out, you'd never see the usual free market crowd bring that out to justify protections for the average worker. Nope, only Boeing gets protections from the free market crowd. It has nothing to do with their size and connections, of course. It's, uh, national pride, or something.

I'm sick of "free markets for thee but not for me!" - let's have markets for the poor AND rich or protections for everyone (like how every developed country in the world got rich). Right now the rhetoric is just a club to beat workers over the head with while the powerful make out like bandits.

Actually the case of Boeing in particular is where the argument for an offset to foreign subsidization may be the strongest. The global commercial aircraft business is basically a duopoly, one of the few major ones around at that level and a chestnut for IO economists, with Airbus the other party to this (some Asian entrants and the Russians trying to get in also, but basically minor). It is well known that Airbus gets all kinds of massive subsidies (those French in particular are really into that sort of thing), and this has long been a complaint by US leaders. Ex-Im subsidies for Boeing have been about all there has been as a response to that, for better or worse.

That said, I am somewhat mystified how it is that such large and successful exporters ad Boeing, GE, and Caterpillar are apparently so unable to get private funding support that they must rely on Ex-Im. Just how much actual subsidy do they get from this odd bank and do they really need it? Again, I have a lot of sympathy with the critics of Ex-Im, which has more or less been operating with little criticism for decades, although it is apparently also the case that it does not cost the taxpayers much if anything at all. Given all these caveats all the way around, this looks a bit like a tempest in a teapartypot, as it were.

This is indeed not a huge deal, but it's just one small example of the cronyism and rot that infects the entire system of American political economy and as such is a useful example. OK, so we want a strong national aircraft business, since the only other big one is Airbus (I agree that Bombardier, the Latin American, Asian, Russian competitors are still minor right now). There's a little problem in that Boeing is strongly integrated into the military industrial complex which is probably something we don't actually want, but let's ignore that for now.

We seem to have three options: 1) Provide heavy public subsidy for Boeing, but all profit is privatized (current situation). Costs the taxpayer huge amounts and makes shareholders and revolving door politicians rich.

2) Nationalize Boeing and subsidize it as a national champion, Chinese-style (or rather, since the Chinese are only doing what the West did in the last couple centuries, Western-style). Taxpayer invests, turns a profit.

3) Let Boeing make private profits without public subsidy and cut out the Ex/Im bank. Free market, it sinks or swims on its own merits vis a vis the competition (which may be "unfairly" subsidized).

You imply that #3 would lead to the collapse of Boeing or some other bad event due to European subsidy for its main competitor (entirely plausible), and thus seem to be advocating the status quo, #1. However, I find public subsidy for private profit unacceptable. If the taxpayer is investing, the taxpayer should be getting the return - that's just capitalism, isn't it? So that leaves us option 2. Well, that's the "bad" kind of socialism - the free market crowd only likes it when risk is socialized, not profits - but that's the only other way.

As a kid I would see these "hooked on phonics' TV ads that were unsettling to my younger self. It was like they were trying to get you to join their cult.

I just don't buy Yglesias's instance in the link that the Ex-Im bank doesn't cost anything or pays for itself. It's like Geithner on how the bank bailouts didn't cost anything. Or even how Geithner said the Long Term Capital hedge fund bailout didn't cost anything because they didn't use taxpayer money. Well yeah but Fed spent time and energy organizing the bailout. They could have just divied up its remaining assets to its creditors and not wasted any more effort like any other bankruptcy.

The Ex-Im bank could be financing other economic endeavors. If it's making money on these deals why aren't private banks financing them?

I agree with those above who say the main thing is the value of the currency. China and Germany are engaged in massively subsidizing their exports via keeping their currency values low.

Of course conservatives are extremely confused over the exchange rate. Mitt Romney castigated China for manipulating its currency on the hand and then blamed Obama for allowing the dollar to weaken on the other.

"In one decade in the eighteenth century, according to the Swedish economist and historian Eli Heckscher in his book of 1932, Mercantilism, the French government sent tens of thousands of souls to the galleys and executed 16,000 (...) for the hideous crime of... are you ready to hear the appalling evil these enemies of the State committed, fully justifying hanging them all, every damned one of their treasonable skins? ...importing printed calico cloth."

Unless Noah wants to argue that the current Boeing-captured state of the ExIm bank is "good for America," then I don't think he has a case. Also, does the "volatility" argument of fluctuating IRR, stock price hold up when we include private equity, hedge funds, and other investors that are willing to take long term, less liquid positions for greater return? I don't think we have any good tools for measuring the hypothetical efficiency generated by this type of government program. So we can only apply the textbook economic concepts of market test, regulatory capture, etc.

Right! Why is it always big corporations that benefit from government largesse? Why don't private citizens get this sort of pork?

Well, except for mortgage subsidies, of course, via tax treatment and government guarantees for MBS. And bank accounts. And money market funds, which are de facto guaranteed but don't even have to pay a fee. And roads, which are maintained out of general revenue because the gas tax isn't indexed. And Medicare. And Social Security.

But other than the mortgages, the money, the roads, the medical care, and the retirement income, what has the government ever done for us?

A later point you made in a tweet about this suggested something far more considered than the idea that they want to 'crash something.' Take in the highway of letting the Highway Trust Fund wither and throw in Ex-Im and it seems more than smashing something arbitrarily. It is about shrinking the size of government, scaling back what it is the federal government does. It is a piece ideologically, and in its internaitonal scope the Ex-Im gets into some very basics of political philosphy. The management and promotion of trade, of relations with other states, is a fundamental of the formation of the state. Why else have a state that relates to other states, beyond simply defending your state from others. It is not just dumb coincidence that most, if not all, nations have their export agencies. They are not the entirety of trade management, of course, but even at their small scale they are fundamental to trade because they respond to one factor that undermines expansion for both exporter and financing entity – risk. So the arguments over anecdotes and, as you say, the deeply flawed economics prism depicted by the right really distracts from this more fundamental political philosophical view.

In terms of your analogy, its worth noting that the "hooked on phonics" advocates were factually wrong; although letter-by-letter reading is a mode of reading, it is not the only mode nor one much used by skilled readers. In fact, its something that presents among people with acquired brain injuries ... hmm. Perhaps there's a lesson there.